Compare and Contrast Paper - Essay Example

Thus, as the name implies, current asserts can be consumed during the current period or they can be converted into cash within a short period of time. A good example of a current asset is a bar of soap in the shop or a bottle of cooking oil. These can be used within the current period or they can be converted into cash when they are bought by a buyer. 2. Any assets whose use is restricted for purposes other than the current operations must be excluded from current assets (Glautior & Underdown, 2001).

Assets are classified as noncurrent assets if they are not expected to be converted into cash or consumed during one year of their operating cycle. The operating life cycle of the noncurrent assets is usually very long and it can exceed a period of ten years. In some instances, the noncurrent assets are intangible and they include investments and special purpose funds. These funds cannot be withdrawn or used within a short period but can only be used after proper plans have been put into place.

Long term investments are regarded as noncurrent assets as this money will be meant for long term plans and may not be immediately withdrawn even in case of emergence. Noncurrent assets also include property, plant and equipment used in the firm. This equipment cannot be readily disposed given that it is in everyday use to manufacture goods and products that can be sold to generate cash. This equipment can only be disposed if it has past its expected life span but not for quick cash like current assets. 3. The main difference between current assets and noncurrent assets is that current assets can be in form of cash or other assets which can be easily converted into cash.

On the other hand, noncurrent assets include investment and special purpose funds and these cannot be readily used like the current assets. Most current assets are tangible and they can be converted into cash easily. On the other hand, noncurrent assets are big assets which include equipment or machinery as well as other property which cannot be converted into cash over a very short period. In some instances, noncurrent assets are intangible which makes them different from the current assets.

Another major notable difference between current assets and noncurrent assets is that their operating cycles are different. The operating cycle of a current asset is relatively shorter and it does not exceed a period of one year while that of a current asset is very long. The operating cycle of a noncurrent asset is more than 10 years long which makes it different from the current asset. For instance, operating cycle of a wine distillery which is a noncurrent asset may extend 10 years while that of a grocery shop may be no more than just a several days. 4. Order of liquidity can be loosely defined as the order upon which the items in the balance shit are listed depending on their liquidity (Chasteen, Flaherty & O’connor, 1998).

As the name implies, order is concerned with chronological organisation of items in their descending order while liquidity is concerned with establishing the readiness upon which cash can be disposed. Something that is liquid is readily used such as cash which can be taken straight away from the pocket to purchase something. In this order, the current assets will come after cash or other payments as these can be